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Outright prices and gross margins have declined across multiple pathways, yet the feedstocks required to produce renewable diesel – used cooking oil (UCO), tallow, and rapeseed oil – have remained firm or strengthened against that backdrop. The gap between softening finished product values and resilient raw material costs is not a short-term anomaly. It reflects a market in which policy-driven compliance demand is competing for a feedstock pool that cannot be expanded at will.
The policy context is specific. Market participants have been closely monitoring Germany’s implementation of the EU’s Renewable Energy Directive (RED III) and the proposed removal of double counting for advanced biofuels from 2026.
These developments are widely expected to tighten renewable fuel demand and support waste-based feedstock markets over the longer term. Germany is one of Europe’s largest renewable fuel markets, and its regulatory posture has direct implications for how compliance demand flows through to feedstock procurement across the continent.
The divergence between feedstock and finished product markets became visible in the week to May 21, when HVO prices, premiums and gross margins declined across all pathways amid softer renewable diesel sentiment and falling crop-based feedstock values. Waste-based feedstocks, however, continued to provide underlying support to the market, with tight availability holding values firm even as HVO outright prices moved lower.
Gross margin data from that week illustrates the scale of the pressure on producers. The HVO crop pathway gross margin FOB ARA was assessed at $1,394.73 per tonne, down $86.14 per tonne week on week. The UCO pathway gross margin fell by $111.28 per tonne to $1,585.11 per tonne, while the tallow pathway declined by $57.82 per tonne to $1,604.08 per tonne. The declines reflected HVO prices falling faster than feedstock costs were moving – a margin compression driven from the finished product side rather than from input cost relief.
The week to May 28 extended that dynamic. Outright prices and gross margins declined further across all pathways as renewable diesel values continued under pressure, while feedstock markets remained firm. The tightness in crop-based feedstocks was attributed specifically to limited availability of old-crop rapeseed oil, with spot material continuing to trade at a premium to forward months.
Market participants reported relatively little spot activity, with most trading focused on later delivery periods – a pattern consistent with buyers managing exposure to near-term tightness rather than actively building positions. European biofuel policy developments were cited as continuing to support the firm outlook for crop-based feedstocks even as demand growth remained below some earlier expectations.
By the week to June 4, conditions across HVO pathways had become more differentiated. Crop- and UCO-based pathways rose while tallow- and POME-based material weakened. The UCO gross margin FOB ARA increased marginally by $5.26 per tonne to $1,523.79 per tonne. The POME pathway recorded the largest decline, with its gross margin falling $78.47 per tonne to $1,774.81 per tonne as rising POME feedstock costs outweighed movements in renewable diesel values.
The most significant market development in that week came from Germany. Reporting indicated that German buyers were increasingly bringing tallow-based HVO into Germany because Annex IX Part A HVO – the category that includes UCO and other high-value waste streams – had become too expensive.
Concerns around compliance caps were prompting those buyers to adjust their pathway mix. The behavior is a direct illustration of the feedstock constraint in practice: when the preferred waste-based pathway becomes unaffordable, compliant buyers do not exit the market – they substitute into the next available pathway, maintaining demand pressure across the feedstock complex as a whole.
The most recent data reinforces how structurally dependent European HVO production has become on waste and residue materials. In the week to June 11, UCO- and tallow-based pathways strengthened while crop and POME-based material weakened. Data cited in the weekly showed that only 9% of European HVO feedstocks originated from crops, while 36% came from Annex IX feedstocks and a further 33% from other sustainable wastes and residues.
The significance of those figures is that Annex IX and waste residue streams – which together account for the majority of European HVO feedstock supply – are not responsive to price signals in the way that crop-based inputs are. Rapeseed oil production can, over a growing season, respond to demand. UCO collection volumes are constrained by the amount of cooking oil that is actually used and disposed of in a given geography. Tallow supply is a function of slaughter volumes, which are driven by protein demand rather than biofuel markets. The feedstock base that European HVO production now depends on is, in aggregate, inelastic.
The week to June 11 also saw the tallow gross margin FOB ARA hold broadly flat at $1,549.65 per tonne, compared with $1,548.52 per tonne the previous week – a relative stability that contrasted with continued softness in crop-based pathway margins. Feedstock availability, compliance demand and physical HVO supply were identified across recent weeks as the primary drivers of price formation in the European renewable diesel market.
For buyers and producers operating across the European HVO and renewable diesel complex, the period from May to June 2026 has demonstrated that feedstock access – particularly for UCO and Annex IX materials – has become the binding constraint on market positioning.
With Germany’s RED III implementation and the proposed removal of advanced biofuel double counting expected to add further compliance pressure from 2026 onward, the structural tension between growing mandate-driven demand and a feedstock supply base that cannot scale proportionally is likely to remain a central feature of the market.
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